Builders are less confident now than they have been since the winter of 2009, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

The index dropped one point to 13 for the month, its lowest level since March of 2009. Analysts were expecting a reading of 15.

Two out three component indices fell in August, with the index of current sales conditions down a point to 14, the index of sales expectations for the next six months down three points to 18, and the gauging traffic of prospective buyers unchanged at 10.

The index for single family homes was down a point to 14, the index for single-family for the next six months was down three points to 18 and the traffic index was flat at 10.

Regionally, the Northeast HMI dropped six points to 18, the South drooped a point to 13, the West dropped a point to eight and the Midwest was flat with July at 15.

Any reading below 50 indicates a lack of confidence. The HMI fell below 50 in May of 2006 and has remained there since. The national HMI hit a record low of 8 back in January, 2009.

"Today's report reflects single-family home builders' concerns about current and future economic conditions and about the increasing hesitancy they are seeing among potential home buyers," said David Crowe, NAHB chief economist. "It also reflects the frustration that builders are feeling regarding the effects that foreclosed property sales are having on the new-homes market, with 87% of respondents reporting that their market has been negatively impacted by foreclosures."

NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Michigan, said many builders are still reporting problems with inaccurate appraisals as well as large numbers of distressed properties on the market and tight consumer lending conditions.

Carl Reichardt, home building analyst at Wells Fargo, saw ominous signs in the data. In a research note to clients, he wrote, "The HMI and its subindices are all at 12-month lows and are all down in excess of 30% from May levels. Commentary from recent earnings calls suggested no material change in conditions in July and today's (8/16) HMI survey indicates to us that the first several weeks of August did not improve either. We believe the potential for a housing downturn extending through 2011 has increased and, in the short run, that builders will struggle to achieve profitability in Q3 given a likely sequential decline in revenue for most firms we cover."

Michael Rehaut at J.P. Morgan Securities took a less dark view, maintaining his positive sector stance. "We continue to believe overall builder order trends have remained largely flattish since May, which we believe was consistently reaffirmed by the recent earnings season," he wrote in an investor note. "Additionally, we remain comfortable with housing supply, as we note that existing homes for sale are currently 13% below their peak, while moreover, note that the more moderate pace of liquidation of foreclosures and shadow inventory continues to be firmly in place, which we believe will persist over the next 12-24 months."